WSJ What’s News - OPEC Divisions Deepen Ahead of Looming Oil Glut

Episode Date: December 6, 2024

A.M. Edition for Dec. 6. Members of the Saudi-led OPEC cartel and other major oil producers are increasingly at odds over their future production plans ahead of political change in Washington. WSJ correspondent Benoit Faucon details their difficult choice between continuing to defend prices or fighting to take back market share. Plus, Donald Trump picks former Georgia Senator David Purdue as his nominee for ambassador to China. And Parisians prepare to celebrate the reopening of Notre Dame. Luke Vargast hosts. Sign up for the WSJ’s free What’s News newsletter . Learn more about your ad choices. Visit megaphone.fm/adchoices

Amazon Q Business is the generative AI assistant from AWS because business can be slow, like wading through mud. But Amazon Q helps streamline work so tasks like summarizing monthly results can be done in no time. Learn what Amazon Q Business can do for you at aws.com slash learn more. Donald Trump picks his nominee for ambassador to China and names a czar for AI and crypto. Plus divisions within OPEC as the oil cartel braces for change in Washington. The Trump factor will change the calculus for non-op players. You have to choose, you want higher prices, which means less oil coming from OPEC and

its partners, or different market share. And Parisians prepare to celebrate the reopening of Notre Dame. It's Friday, December 6th. I'm Luke Vargas for the Wall Street Journal and here is the AM edition of What's News, the top headlines and business stories moving your world today. President-elect Donald Trump says he plans to nominate former Georgia Senator David Perdue as ambassador to China, putting the business executive in a key role navigating relations between the world's two largest economies.

I asked journal China politics reporter Chun Han-wong how the pick is going over in Beijing. I spoke to some Chinese academics and foreign affairs commentators, and they seem to take a cautiously optimistic view. They pointed to the fact that even though Purdue has said some things that had led him to be considered to be somewhat anti-China, he's also had this extensive experience as a business executive in Asia, including two years that he spent living in Hong Kong, and his career in textile manufacturing and retail, As a business executive in Asia, including two years that he spent living in Hong Kong and his career in textile manufacturing and retail meant that he would have likely have

had extensive experience dealing with Chinese contractors and understand the trade dynamics between the US and China and be able to offer more pragmatic advice to President-elect when he takes office. Nat. All right, Shunhan, so potentially a more pragmatic approach to things from Purdue. And yet you mentioned some of his past comments being perceived as anti-China. Tell us a bit more about his political record and what we can maybe glean from it. Shunhan.

Yes. During his time in the Senate, he had said certain things that can be seen as fairly hawkish on China. He talked about the military threat that China poses to the United States, for example, in maritime power and even in space. He visited Taipei in 2018, where he met the then Taiwanese president Tsai Ing-wen and expressed support for US policy

towards supporting Taiwan. So this is a hot bun issue, it's a key issue for China. China has traditionally expressed very stern opposition to official US interactionsS. interactions with Taiwanese political leaders. So the fact that he has done this before could be seen as negative in Beijing." Asked about Trump's choice of Purdue, which is subject to Senate confirmation, a Chinese Foreign Ministry spokesman said only that Beijing had noticed the relevant reports and

didn't offer further comment. Meanwhile, Trump said Silicon Valley investor David Sachs will serve in a role that he's calling his White House AI and Crypto czar, signaling the growing influence of tech leaders in the new administration. Sachs was one of the first vocal supporters of Trump in Silicon Valley and has strong ties to Elon Musk, having worked with the Tesla CEO at PayPal more than two decades ago. Here's Journal reporter Caitlin McCabe.

This further supports Trump's rhetoric about being a strong supporter of crypto. Looking at Sachs' history, he comes from the world of venture capital and has invested in crypto and AI startups. Tech leaders had hoped that the next president would have a friendlier stance on crypto, and they've also pressed for friendlier federal policies around artificial intelligence. And it seems like crypto executives are pretty pleased with his appointment. We saw Emily Choi, for example, who is the president and COO of Coinbase post on social media that it is, quote, time to build in

the U.S., unquote. America's second largest health insurer, Anthem Blue Cross Blue Shield, is reversing a policy change that would have placed a time limit on the use of anesthesia. A company statement described the decision as driven by misinformation being spread about the policy, which would have tied payments to the duration of procedures, noting that medically necessary anesthesia would have been paid for as long as providers submitted documentation about why they deviated from clinical guidelines. Among those critical of the policy were New York Governor Kathy Hochul and Connecticut

Senator Chris Murphy, who called it appalling and suggested it was an attempt to boost corporate profits. Anthem's decision comes as Wednesday's killing of UnitedHealthcare CEO Brian Thompson has fueled an outpouring of frustration with companies that provide medical care coverage, especially over denials of service and requirements that patients and doctors get permission from insurers before medical procedures, a practice known as prior authorization. According to an American Medical Association survey, nearly a quarter of doctors said that prior authorization led to a serious adverse event for a patient, and 94 percent said it

had delayed necessary care. And in market's news today, global food prices climbed to a 19-month high in November, according to the UN Food and Agriculture Administration. Fueling the jump was a 7.5% monthly increase in vegetable oil prices. Overall, the measure of prices for a basket of staple foods stands 5.7% higher than a year earlier. And the Labor Department will release November's jobs report at 8.30 a.m. Eastern. The payroll's data will be a key consideration for the Federal Reserve as it prepares for its next interest rate decision due on December 18.

Coming up, correspondent Ben Wafo Khan joins us to discuss widening divisions among oil producers bracing for the incoming Trump administration. We've got that story and more after the break. You'll get four pieces of delicious Popeyes signature chicken, four tasty chicken tenders, four regular-sized, and everybody's favorite, four buttermilk biscuits. Hurry up though, like the holiday season, Popeyes' $25 festive family box deal will be over before you know it. Oil prices are edging lower today, despite a decision yesterday by the OPEC oil cartel and its allies to further delay a planned increase in production.

That move by OPEC Plus comes as the market deals with softer prices and concerns about an impending oil glut. But as the journal's Benoît Faucon is here to discuss, divisions within the cartel are widening amid a push by some members to pump more and maximize short-term profits. Benoit, you describe the decision-making process within OPEC as being increasingly fractious below the surface, this coming after a long period in which Saudi Arabia, in your words, had unquestioned dominance over the group's strategy.

What is motivating this shift? So first of all, there's the Trump factor, which we know will change the calculus for a lot of players in the Middle East conflict, but also in the oil market. You have to remember that Trump said actually two things. One is we want lower oil prices for US consumers, but we also want more US production, which does need prices at a reasonable level. So what the OPEC players are reading is, okay, there's going to be more oil coming and more competition for OPEC. So it presents a bit of a choice in immediate term

strategy. Exactly. So you have to choose, you want higher prices, which means less oil coming from OPEC and its partners, or defend your market share, which means lower prices because that's the best way you have to find Shell, which typically rely on a certain level of prices. You compare with the cost of producing in the Middle East. Most countries, it would cost a few dollars a barrel to pump oil, while in Shell, you have numbers like 40, 50 dollars. You need a minimum level.

The question is higher prices or defending your market share. And it seems like at least for now, defending higher prices has kind of won the day over taking back market share. But it sounds like there are still several countries very eager to bring more production online, including two that have exceeded their quotas in the past, which I guess raises the question of compliance following yesterday's decision. Yeah, these players feel that the Saudi Arabia gave a free pass to its neighbor, the United Arab Emirates, by allowing them to increase their production separately from the rest

of the group. But actually yesterday, there was a slight delay agreed of three months for that increase. So that was a compromise. But they feel like the UAE says it has the possibility of increasing more. It's invested money in that production. But other countries say, well, it's the same for us. Iraq and Kazakhstan have exceeded their quota significantly for many months because they invested in new capacity.

And now they want to take advantage and so effectively legalize or normalize the production level they are at. And that's creating a tension because other members want actually to cut production for the group. On the other hand, you have a lot of players who say, well, it makes no sense to bring more oil when there's going to be an excess of oil, there's going to be a surplus next year. We had the Iranian going on the record and saying they felt that production should actually be cut. So yeah, it's basically all over the place. and the compromise was let's do nothing. Let's change nothing in our production level.

And finally, Benoit, in our final seconds, what are market watchers and economists making of this? Evidently, some producers are buying themselves some time to see how the Trump administration actually shakes out. But is there a sense that producers are going to be able to make prices work for them in more of the medium term? They're in a risky place because production level from rivals, OPEC rivals, effectively force OPEC to likely retreat in the medium term, at least some of its producers, specifically the Saudis. You add to that demand situation, which has been very disappointing in China. China never really came back to sort of engine of global, all-demand growth that it used to be before COVID.

And that's another factor to consider when you are an old producer, a Middle East producer, which at the moment will have very high economic needs because they're all trying to diversify. They've got large populations that rely at the moment on this oil revenue, but they also need to invest for the energy transition. So that's a real conundrum that they don't seem to have resolved yet. I've been speaking to Wall Street Journal correspondent Benoit Faucon. Benoit, thanks as always for the update. Yeah, thank you.

See you. And finally, dozens of world leaders will be in Paris this weekend to mark the reopening of Notre-Dame more than five years after the cathedral was ravaged by fire. Its rebuilding became one of the most complicated reconstruction projects that France had ever undertaken on a historical monument. Journal reporter Noémie Bessere will be on hand this weekend and says the celebrations come as President Emmanuel Macron's government is in turmoil. Macron announced that France would rebuild Notre Dame in five years, just hours after

the fire. Stunning experts who thought it would take at least 15 or 20 years. So it's quite an achievement. The world got its first glimpse of the cathedral last week when Macron took viewers on a live televised tour of Notre-Dame. So you can see that a cream-coloured limestone inside the cathedral has been stripped of ash, lead dust, but also centuries of accumulated grime. So its vaults, columns and walls are startlingly bright. I think that Macron was really hoping that this reopening would mark a moment of national unity and would also be an opportunity for him to shine. But the collapse of his government this week really risks be an opportunity for him to shine. But the collapse of his government this week really risks spoiling it for him. France is going through this unprecedented

political crisis and many in France blame him for it. So the timing is really bad for the French president. And that's it for What's News for Friday morning. Today's show was produced by Kate Boulevent. Our supervising producer was Daniel Bach, and I'm Luke Vargas for The Wall Street Journal. We will be back tonight with a new show. Otherwise, have a great weekend and thanks for listening.